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Original poster

Tax charge on child benefit - totally confused.

33 replies

Lindy2 · 21/12/2018 14:52

Can anyone help please with a question on child benefit and the tax charge if you earn over £50,000?
DH had an unexpectedly good year of bonuses last tax year so for the first time ever had earnings over £50,000.
He had earnings of £58,000 and had employee pension contributions of £6,000 into a company pension scheme.
Everything I've seen says you take pension contributions off your earnings to work out the figure for your earnings for the tax charge.
This would be £52,000 after the pension so we expected to pay a few hundred pounds in tax.
HMRC say we are wrong and the full £58,000 is the right figure so tax of £1,700 is due - now and in one lump sum.
They won't explain why and they won't put it in writing. They just told him they are right we are wrong so pay up. It also doesn't help that their phone call to him was followed by a scam call just 3 minutes later saying that a warrant will be taken out for his arrest for tax fraud! Poor DH went into a right panic.
We've established the first call was HMRC. The second was a scam that has now been reported.
I'm guessing we have to pay which is horrible timing as DH will also be made redundant in the new year. I'd just really like to understand why everything I've read on the HMRC website says take off pension contributions but apparently that doesn't apply to him.
Would really appreciate it if someone more knowledgable could explain it! Thank you.

OP posts:
Ta1kinpeace · 21/12/2018 15:34

If his scheme is not "salary sacrifice" then it will not have been taken before tax
BUT
if he does a tax return (pay an accountant to check the numbers) he should get the extra tax offset

Ivan3rdEye · 21/12/2018 15:36

have you tried to enqiure from ur accountant?

Original poster
Lindy2 · 21/12/2018 15:37

Thanks Ta1k. I'm pretty sure it is a salary sacrafice scheme. Does that mean it doesn't come off and the £58,000 is correct?
He hasn't done a self assessment before as his earnings are usually below the £50,000.

OP posts:
Original poster
Lindy2 · 21/12/2018 15:39

We've not got an accountant as we've not needed one before.

OP posts:
Ta1kinpeace · 21/12/2018 15:43

Lindy
Get him to check with the PAYE team at work. They will be able to check the codings.
Otherwise I would honestly suggest that paying a couple of hundred to an accountant will pay for itself
and reduce your stress

madrush · 21/12/2018 15:44

You are right, pension contributions reduce the tax position. Why did HMRC call him and how are you sure it was HMRC that time? How did they want him to pay? It shouldn’t be due for 2017/18 tax year until Jan 31st through self assessment system.

Original poster
Lindy2 · 21/12/2018 15:51

Madrush - he wrote to HMRC sending his last tax year payslip which showed gross earnings and pension contributions. The person who rang him had the date and details of that letter so we assumed must be from HMRC.
I'll get him to contact his PAYE people at work and see if we can find an accountant. If we pay before the 31st Jan deadline (scared of fines and interest charges on top of this amount!) and then find out the tax charge is wrong would he get it back?

OP posts:
ISdads · 21/12/2018 15:57

You take off the pension payments when calculating this if it wasn't already done for you by your employer eg you have a separate private pension and make your own contributions to it outside of work. (This is a really laymans explanation).

It would be worth keeping on top of this for future ref as you could just stick an extra lump sum in another pension/avc

Has he done a tax return? If you make charitable donations/have work expenses it is worth doing.

(Total non expert so this is my understanding only)

Ta1kinpeace · 21/12/2018 16:12

Lindy2
If he pays before 31 Jan and then it turns out not to be owed, yes, they will refund within a few weeks.
I am a tax accountant by the way

Original poster
Lindy2 · 21/12/2018 16:40

Thank you. That's good to know. It gives us a bit longer to sort it out as 21st Dec is really not the best time to go and find an accountant.
He's also had 3 different tax codes sent to him in the last 2 weeks just to add to the general confusion. Confused

OP posts:
Ta1kinpeace · 21/12/2018 18:00

Hmm, sounds like they are making a pigs ear.
Joking apart, most accountants work over Christmas
(I am one of the saddos who always files stuff on Christmas day because the HMRC servers run really well that day)
If you have no joy asking at work, see if you can get an accountant from here - they are a good crowd
www.ukbusinessforums.co.uk/forums/accounts-finance.55/

Reallybadidea · 21/12/2018 18:14

The person who rang him had the date and details of that letter so we assumed must be from HMRC...They won't explain why and they won't put it in writing

This sounds a bit strange to me. Have you actually had a bill from them? Maybe @Ta1kinpeace can confirm whether this is usual for HMRC to make phonecalls like this because I have never had HMRC phone me like this. I've only ever had letters from them, although to be fair it is a few years since I did a tax return.

I can confirm that HMRC don't always understand their own rules - we also had major issues with them accepting that non-salary sacrifice pension contributions are disregarded from taxable income. Took an accountant (and a few hundred quid) to get them to believe us. Money well spent though.

Ta1kinpeace · 21/12/2018 18:18

HMRC calls all come from 0300 numbers .... if your phone logs calls it should show
and they are a shower of &&&& about being accurate Xmas Grin

madrush · 21/12/2018 18:19

Have you tried using the calculator www.gov.uk/child-benefit-tax-calculator
It really doesn’t seem right that you owe it all back. If you overpay HMRC you will get the money back, yes.

Ta1kinpeace · 21/12/2018 18:20

THe calculator gets VERY confused with pensions for higher rate taxpayers

Arnoldthecat · 21/12/2018 18:42

No i believe the HMRC are right. If he is employed and pension contributions are taken from his pay then it has no bearing on his tax position. If he pays into his OWN pension arrangement i.e a SIPP, then yes, it can change his final tax position and also lead to tax relief via the SIPP provider.
He needs to do a self assessment,,check out the dealines or he may get a standard fine.

Reallybadidea · 21/12/2018 19:14

I don't think that's correct @Arnoldthecat. He's not trying to get tax relief on his pension contributions, he's trying to show that his adjusted net income is only £52000 based on his pension contributions. This is so that he can avoid some of the Child Benefit Charge which is completely different to income tax.

Incidentally OP, if your dh is in the higher rate tax band and isn't on salary sacrifice for pension contributions then he should be filling in a tax return to get the extra tax relief paid back to him.

Reallybadidea · 21/12/2018 19:18

If he is employed and pension contributions are taken from his pay then it has no bearing on his tax position.

Sorry, meant to say that this isn't necessarily the case. Lots and lots of people pay into work-based pension schemes where the money is taken from post-tax pay. In this case your P60 will show your pay before pension contributions rather than after.

LaPufalina · 21/12/2018 20:07

Does he have any p11d//taxable benefits that they're including in earnings?

Arnoldthecat · 21/12/2018 20:27

So it all seems to hinge on;
a) Is he directly employed by an Employer
b) Is his pension contribution taken from his pre or post tax pay..

fromdownwest · 21/12/2018 20:41

Either way then the adjusted net income will be reduced. If it is a salary sacrifice then the his pay of £58,000 will actually be £52,000 as the pension is taken from his gross pay.

The other route is that your adjusted net income - i.e income from all sources less gross pension contributions, any any other reductions will result in a pay of £52,000.

The charge will be 1% per £100 over £50k, so in your situation (assuming numbers are correct) will be a 20% charge.

Original poster
Lindy2 · 21/12/2018 21:34

Thanks everyone.
It is a company pension where his contributions are taken before tax so he doesn't have to claim any tax relief back even if he gets into the higher rate tax bracket.
The £58,000 includes all his pay, bonuses and car allowance. His employee pension contributions were £6,000 and his employer pays more on top of that.
The child benefit tax calculator showed he owed about £300. He did a self assessment because of going over £50,000. We followed the instructions and put in gross pay less pension contributions. It clearly states that is the figure to use and it actually came back as being owed some tax back which wasn't what we expected.
HMRC compliance then wrote saying he had done it wrong and that he shoukd have entered full £58,000.
He then sent them his March payslip showing £58,000 pay and £6,000 pension contributions, as well as a print off of their instructions saying use pay less pension contributions. They rang him today to say they are right and he owes that tax.
It doesn't seem right to me as it's not tax relief on his pension contributions he's after but the right base pay figure for the child tax benefit charge. It seems if it was a personal pension he would get tax relief and a reduction in the base pay figure for child benefit tax.

OP posts:
Ta1kinpeace · 21/12/2018 21:41

Lindy
What does his P60 say for "taxable pay" which is different from gross pay.
If you feel brave, PM me his P60 and Month 12 payslip and I'll check
AND
as was said up thread .... did he have a P11d for car and healthcare and the like ?

ISdads · 21/12/2018 21:51

It isn't that if it was a personal pension outside work that it would count and a company pension doesn't count! It's that the number on the p60 might have already taken into account the pension deduction. You can't count it twice.

ISdads · 21/12/2018 21:59

For example, my pay ...
I earn 32k gross, according to my contract
But my p60 never says 32k, it says something like 29.5k. If I then look at how much I paid each month into my company pension, it adds up to 32k-29.5k (so 2.5k). Now, if I applied for tax credits (same concept of declaring income minus pension contributions) if I put in 29.5k (from my p60) and then deducted 2.5k for pension, that would not be the correct figures for my income. My correct taxable income was already worked out for me on my p60 at 29.5k (=32k minus my 2.5k pension contribution)

Awesome that Ta1kinpeace is helping you out!